Dr. Avi Nov, Adv.
Israel is now focusing on combating tax planning. In recent years, Israel has taken significant measures to strengthen the effort to fight tax evasion and avoidance.
In 2003, Article 75b was added to the Income Tax Ordinance (hereinafter: ITO), to deal with controlled foreign companies (hereinafter: CFC). The purpose of the Israeli CFC rules is to tax the controlling members of the CFC who are Israeli residents as if dividends were actually distributed to them.
The CFC rules introduce the concept of ‘deemed dividend’ to controlling Share holders (Israeli residents holding 10% or more of the means of control) for unpaid profits of controlled foreign companies of which 50% of the control is being held by Israeli residents.
In 2006, a chapter was added to the ITO, dealing with the taxation of income produced through the use of local and foreign trusts, and which includes various obligations and expanded reporting requirements (section 75(c) – (r) of the ITO).
Most importantly, Israeli tax law provides for the careful examination of transactions and actions are carefully examined during the assessment process. Israeli tax law provides that the assessing officer may ignore artificial or fictional transactions or transactions the main purpose of which is the inappropriate avoidance or reduction of tax.